Perils of Deflation

Daily Mail

"The Bank of England yesterday warned there is a 20 per cent chance the UK could spiral into deflation in 2010. Deflation is the inverse of inflation, and is seen as one of the worst economic diseases a country can catch.It involves a massive squeeze on lending, which leads to sustained falls in prices on the High Street.The costs of food, clothing, cars, electronic goods, and services plummet as companies are forced to repeatedly slash prices. This can drive thousands of firms out of business and send unemployment to stratospheric levels.For those with large debts, the consequences are disastrous. During inflation, debts become easier to service over time as the value of money is eroded.But with deflation the opposite happens, resulting in rocketing debt defaults and more trouble for the banking sector.This last struck the U.S. and European economies during the Great Depression of the 1930s."
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The economic benefits from record levels of immigration to Britain are 'small and close to zero', the Lords was told today.(Daily Mail)